Whether an Indian Limited Liability Partnership ('LLP') is proposed to be merged into an Indian company then firstly, the LLP has to apply for registration under Section 366 of the Companies Act, 2013.
Let's understand above query with a decided case law Regional Director, Southern Region and Ors. (Appellants) vs. Real Image LLP and Ors. (Respondents)NCLATCompany Appeal (AT) No. 352 of 2018.
1. National Company Law Tribunal, Chennai vide impugned order dated 11.06.2018 allowed the company petition filed by respondents and permitted amalgamation of the Limited Liability Partnership firm into Private Limited company.
2. Hence the appellant Regional Director, Southern Region and Registrar of Companies have preferred this appeal under Section 421 of the Companies Act, 2013.
3. M/s. Real Image LLP (hereinafter referred to as transferor LLP) with M/s. Qube Cinema Technologies Pvt. Ltd. (hereinafter referred to as transferee company) and their respective partners, shareholders and creditors moved joint company petition under Section 230 to 232 of the Companies Act, 2013 read with Companies (Compromises, Arrangements and Amalgamation) Rules 2016 and National Company Law Tribunal Rules, 2016 before NCLT, Chennai.
4. Transferor LLP is proposed to be amalgamated and vested with transferee company. Transferor LLP is incorporated on 4.1.2016 under the provisions of Limited Liability Partnership Act, 2008 having its registered office in Chennai. The transferee company is a private limited company incorporated on 12.1.2017 under the Companies Act, 2013 and having its registered office also in Chennai. Both the incorporated bodies are engaged in the business of establishing and or acquiring Audio and Video Laboratories for Recording, Re-recording, Mixing, Editing, Computer Graphics and special effects for Film, Television Video and Radio Productions etc.
5. NCLT after considering the scheme found that all the statutory compliances have been made under Section 230 to 232 of the Companies Act, 2013 (in brief Act 2013).
6. NCLT further found that as per Section 394(4)(b) of companies Act, 1956, LLP can be merged into company but there is no such provision in the Companies Act, 2013. However, explanation of sub-section (2) of Section 234 of the Companies Act 2013 permits a foreign LLP to merge with an Indian company, then it would be wrong to presume that the Companies Act, 2013 prohibits of a merger of an Indian LLP with an Indian company.
7. Thus, there does not appear any express legal bar to allow merger of an Indian LLP with an Indian company. Therefore, NCLT applying the principal of Casus Omissus, by the impugned order allowed the amalgamation of Transferor LLP with transferee company.
8. Being aggrieved the appellants have filed the present appeal.
9. Issue for consideration before NCLAT is that by applying the principal of casus omissusa Indian LLP incorporated under the LLP Act 2008 can be allowed to merge into an Indian Company incorporated under the Act, 2013?
10. NCLAT observed that it is undisputed that transferor LLP is incorporated on 04.01.2016 under the provisions of LLP Act, 2008 and the transferee company is incorporated on 12.01.2017 under the Companies Act, 2013. Thus, these corporate bodies were governed by the respective Acts and not by earlier Act, 1956. Hence, it is apparent that as per Section 232 of the Companies Act, 2013, a company or companies can be merged or amalgamated into another company or companies. The Companies Act, 2013 has taken care of merger of LLP into company. In this regard Section 366 of the Companies Act, 2013 provides that for the purpose of Part I of Chapter XXI the word company includes any partnership firm, limited liability partnership, cooperative society, society or any other business entity which can apply for registration under this part. It means that under this part LLP will be treated as company and it can apply for registration and once the LLP is registered as company then the company can be merged in another company as per Section 232 of the Companies Act, 2013.
11. NCLAT further observed that the provisions of the Companies Act, 2013 as a whole in reference of conversion of Indian LLP into Indian company there is no ambiguity or absurdity or anomalous results which could not have been intended by the legislature.
12. The principal of casus omissus cannot be supplied by the Court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself. There is no such occasion to apply the principal of casus omissus.
When a statute or an instrument of writing undertakes to foresee and to provide for certain contingencies, and through mistake, or some other cause, a case remains to be provided for, it is said to be a casus omissus.
For example, when a statute providesfor the descent of intestates estates, and omits a case, the estate descends as it did before the statute, whenever that, case occurs, although it appear to be within the general scope and intent of the statute.
When there has been a casus omissus in a statute, the subject is ruled by the common law.
13. The legislature has enacted provision in the Companies Act, 2013 for conversion of Indian LLP into Indian Company and vice versa in the Limited Liability Partnership Act, 2008. Thus there is no question infringement of any constitutional right of the Respondent.
14. The NCLAT held that the impugned order passed by NCLT, Chennai Bench is not sustainable in law and thus, set aside, which is allowing the merger of an Indian LLP with an Indian company without such registration.
From above discussion it is clear that a LLP can be merged with a private limited company under provisions of Section 232 read with provisions of Section 366 of the Companies, Act 2013. Their merger will be government by the provisions of the Companies Act, 2013 and not the Companies Act, 1956. The court has also said that if a provision has been omitted or not provided in the Act, then the matter decided on the basis of common law.
DISCLAIMER: The case study presented here is only for sharing knowledge with the readers. The views are personal , shall not be taken a professional advice. In case of necessity do consult with professionals for more understanding and clarity on the subject matter.
1) Where an application is made to the Tribunal under section 230 for the sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Tribunal—
(a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of the company or companies involving merger or the amalgamation of any two or more companies; and
(b) that under the scheme, the whole or any part of the undertaking, property or liabilities of any company (hereinafter referred to as the transferor company) is required to be transferred to another company (hereinafter referred to as the transferee company), or is proposed to be divided among and transferred to two or more companies, the Tribunal may on such application, order a meeting of the creditors or class of creditors or the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal may direct and the provisions of sub-sections (3) to (6) of section 230 shall apply mutatis mutandis.
(2) Where an order has been made by the Tribunal under sub-section (1), merging companies or the companies in respect of which a division is proposed, shall also be required to circulate the following for the meeting so ordered by the Tribunal, namely:—
(a) the draft of the proposed terms of the scheme drawn up and adopted by the directors of the merging company;
(b) confirmation that a copy of the draft scheme has been filed with the Registrar ;
(c) a report adopted by the directors of the merging companies explaining effect of compromise on each class of shareholders, key managerial personnel , promoters and non-promoter shareholders laying out in particular the share exchange ratio, specifying any special valuation difficulties;
(d) the report of the expert with regard to valuation, if any;
(e) a supplementary accounting statement if the last annual accounts of any of the merging company relate to a financial year ending more than six months before the first meeting of the company summoned for the purposes of approving the scheme.
(3) The Tribunal, after satisfying itself that the procedure specified in sub-sections (1) and (2) has been complied with, may, by order, sanction the compromise or arrangement or by a subsequent order, make provision for the following matters, namely:—
(a) the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of the transferor company from a date to be determined by the parties unless the Tribunal, for reasons to be recorded by it in writing, decides otherwise;
(b) the allotment or appropriation by the transferee company of any shares, debenture , policies or other like instruments in the company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person:
Provided that a transferee company shall not, as a result of the compromise or arrangement, hold any shares in its own name or in the name of any trust whether on its behalf or on behalf of any of its subsidiary company or associate companies and any such shares shall be cancelled or extinguished;
(c) the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company on the date of transfer;
(d) dissolution, without winding-up, of any transferor company;
(e) the provision to be made for any persons who, within such time and in such manner as the Tribunal directs, dissent from the compromise or arrangement;
(f) where share capital is held by any non-resident shareholder under the foreign direct investment norms or guidelines specified by the Central Government or in accordance with any law for the time being in force, the allotment of shares of the transferee company to such shareholder shall be in the manner specified in the order;
(g) the transfer of the employees of the transferor company to the transferee company;
(h) where the transferor company is a listed company and the transferee company is an unlisted company,—
(A) the transferee company shall remain an unlisted company until it becomes a listed company;
(B) if shareholders of the transferor company decide to opt out of the transferee company, provision shall be made for payment of the value of shares held by them and other benefits in accordance with a pre-determined price formula or after a valuation is made, and the arrangements under this provision may be made by the Tribunal:
Provided that the amount of payment or valuation under this clause for any share shall not be less than what has been specified by the Securities and Exchange Board under any regulations framed by it;
(i) where the transferor company is dissolved, the fee, if any, paid by the transferor company on its authorised capital shall be set-off against any fees payable by the transferee company on its authorised capital subsequent to the amalgamation; and
(j) such incidental, consequential and supplemental matters as are deemed necessary to secure that the merger or amalgamation is fully and effectively carried out:
Provided that no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company's auditor has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133.
(4) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to the transferee company and the liabilities shall be transferred to and become the liabilities of the transferee company and any property may, if the order so directs, be freed from any charge which shall by virtue of the compromise or arrangement, cease to have effect.
(5) Every company in relation to which the order is made shall cause a certified copy of the order to be filed with the Registrar for registration within thirty days of the receipt of certified copy of the order.
(6) The scheme under this section shall clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date.
(7) Every company in relation to which the order is made shall, until the completion of the scheme, file a statement in such form and within such time as may be prescribed with the Registrar every year duly certified by a chartered accountant or a cost accountant or a company secretary in practice indicating whether the scheme is being complied with in accordance with the orders of the Tribunal or not.
(8) If a company fails to comply with sub-section (5), the company and every officer of the company who is in default shall be liable to a penalty of twenty thousand rupees, and where the failure is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such failure continues, subject to a maximum of three lakh rupees.
Explanation.—For the purposes of this section,—
(i) in a scheme involving a merger, where under the scheme the undertaking, property and liabilities of one or more companies, including the company in respect of which the compromise or arrangement is proposed, are to be transferred to another existing company, it is a merger by absorption, or where the undertaking, property and liabilities of two or more companies, including the company in respect of which the compromise or arrangement is proposed, are to be transferred to a new company, whether or not a public company , it is a merger by formation of a new company;
(ii) references to merging companies are in relation to a merger by absorption, to the transferor and transferee companies, and, in relation to a merger by formation of a new company, to the transferor companies;
(iii) a scheme involves a division, where under the scheme the undertaking, property and liabilities of the company in respect of which the compromise or arrangement is proposed are to be divided among and transferred to two or more companies each of which is either an existing company or a new company; and (iv) property includes assets, rights and interests of every description and liabilities include debts and obligations of every description.
(1) For the purposes of this Part, the word “company” includes any partnership firm, limited liability partnership, cooperative society, society or any other business entity formed under any other law for the time being in force which applies for registration under this Part.
Subject to the provisions of any other law for the time being in force, a foreign company, may with the prior approval of the Reserve Bank of India, merge into a company registered under this Act or vice versa and the terms and conditions of the scheme of merger may provide, among other things, for the payment of consideration to the shareholders of the merging company in cash, or in Depository Receipts, or partly in cash and partly in Depository Receipts, as the case may be, as per the scheme to be drawn up for the purpose.
For the purposes of sub-section (2), the expression “foreign company” means any company or body corporate incorporated outside India whether having a place of business in India or not.
FCS Deepak Pratap Singh
(Associate Vice President - Secretarial & Compliance (SBI General Insurance Co. Ltd.))
Category Corporate Law Report
